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Tesla Model 3's 5-Star Safety Rating -- What You Need to Know

Daniel Sparks, The Motley Fool

Tesla (NASDAQ: TSLA) has polarized investors. On one hand, it has attracted enough investment capital to boast a market capitalization slightly higher than General Motors despite selling only a fraction of the millions of vehicles GM ships every ear. But on the other hand there's the fact that Tesla is one of the most shorted stocks in the stock market as traders bet on making money from a falling stock price.

Despite the split view on Tesla's stock, one thing most investors will likely agree on is that Tesla's Model 3 is a game-changer. Not only has the important vehicle prompted many automakers to up the ante when it comes to their electric-vehicle plans, but the vehicle's soaring sales mean it was the best-selling premium mid-sized sedan in July. And based on Tesla's forecast for more rapid growth in vehicle deliveries in Q3, the vehicle's lead will only widen.

And now there's another reason Model 3 is a game-changer: safety. 

A red Model 3

Model 3. Image source: Tesla.

Five stars

When Tesla first unveiled the production version of the Model 3, the electric-car company promised the new vehicle would boast a five-star safety rating. But it wasn't until this week that the vehicle was finally awarded that rating. After testing the rear-wheel-drive version of the new vehicle, the National Highway Traffic Safety Administration (NHTSA) has given the vehicle both a five-star overall rating and a five-star rating in every category and subcategory. The main categories are front, side, and rollover collisions.

The Model 3's five-star rating from NHTSA means all of the company's vehicles now have five-star ratings -- not only five-star ratings overall but five stars in every category and subcategory.

When the Model S was tested in 2013, the vehicle earned the highest rating of any car ever. But Tesla has since stopped providing manufacturers with scores above five stars.

Tesla's Model X's safety rating also made headlines as it was the first SUV ever to achieve a five-star rating in every category and subcategory. As with Tesla's other vehicles, the Model X's low center of gravity makes rollovers extremely difficult. "The rigid, fortified battery pack that powers Model X is mounted beneath the floor of the vehicle creating a center of gravity so low that Model X has the lowest rollover probability of any SUV on the road," Tesla explained in a blog post last year. "No other SUV has ever come close to meeting and exceeding this rollover requirement."

The Model 3 similarly benefits from the same inherent safety benefits of Tesla's approach to vehicle design. The battery helps both with making rollovers more difficult and providing side collision strength. In addition, the Model 3's front trunk means there is a larger crumple zone to help absorb front impacts.

A demand lever?

The Model 3's higher safety rating comes at a good time for the automaker. The company has been ramping up production in hopes to achieve profitability in the second half of the year. Putting the standard-battery version of the Model 3 on hold until next year, Tesla needs to sustain high levels of demand for the more expensive versions of the vehicle throughout Q3 and Q4. While Tesla was confident in demand for Model 3 in the company's second-quarter shareholder letter, there's likely a limited market for customers willing to pay for Model 3 versions that start at $49,000.

A timely five-star rating for Model 3 could help demand for the vehicle.

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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.